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Law Service

Financial Law

Legislative History

Financial sector in India has reached new heights and Indian economy is considered as one of the fastest growing economies. The legislations in the financial sector ultimately aim to increase the financial stability and to upkeep the securities market. Prior to independence all these concepts were unheard of but its origin can be traced back to the Bombay Stock Exchange. Around 1850’s many stockbrokers would gather in front of Mumbai's Town Hall but with passage of time the number of brokers kept on increasing. The brokers ultimately moved to Dalal Street in 1874 and in 1875 became an official organization known as 'The Native Share & Stock Brokers Association'. All this paved for concrete laws in the financial sector and in 1956, BSE was recognized by the Indian Government under the Securities Contracts Regulation Act.

Financial Law in India

Financial laws are rules and regulations which subjects financial institutions to certain requirements, restrictions and guidelines, aiming to maintain the integrity of the financial system. The main objective of these regulations being to:

Instill market confidence – to maintain confidence in the financial system Increase financial stability - contributing to the protection and enhancement of stability of the financial system Consumer protection - securing the appropriate degree of protection for consumers. Reduction of financial crime - reducing the extent to which it is possible for a regulated business to be used for a purpose connected with financial crime.

The financial laws regulate the functioning of the stock exchanges and supervise the same. These laws specify that the trading on the exchanges is conducted in a proper manner and there is efficient trade monitoring. The financial regulators who are created by virtue of the financial laws work to ensure that the listed companies and market participants comply with various regulations under the trading acts. The financial Acts further specify that the listed companies publish regular financial reports, ad hoc notifications or directors' dealings. All this is done so as to ensure that investors have access to all adequate information and on the basis of the same they make an informed assessment of listed companies and their securities. Financial laws also work in towards prevention of money laundering activities and these laws also supervise the functioning of the banks and others financial services providers.

Client Segments

Finance is the area which commands lot of importance and in many ways it is the area which decides the future of the country in many ways. Indian Financial Sector has many regulators like RBI, SEBI and all these work together to ensure that the Financial Sector is free of any illegal and criminal activities and that the functioning of the stock exchange, the banking institutions and the listed companies is proper. The Financial laws have an impact on the complete Indian Financial Sector be it the companies listed on stock exchange or the banking institutions.

Related Enactments

The Banking Regulation Act, 1949
The Act was formulated with objectives to safeguard the interest of depositors; to develop banking institutions on sound lines; and to attune the monetary and credit system to the larger interests and priorities of the nation.

Reserve Bank of India Act, 1934
The Act was formulated to constitute a Reserve Bank for India to regulate the issue of Bank notes and the keeping of reserves with a view to secure monetary stability in India and generally to operate the currency any credit system of the country to its advantage.

The Banking Companies (Acquisition and Transfer of Undertakings) Acts, 1970
The Act provides for the acquisition and transfer of the undertakings of certain banking companies, having regard to their size, resources, coverage and organisation, in order to control the heights of the economy.

The Negotiable Instruments Act, 1881
The Act defines the law related Promissory Notes, Bills of exchange and Cheques.

The Securities Contracts (Regulation) Act, 1956
The Securities Contracts (Regulation) Act, 1956 (hereinafter referred to as the Act), containing a mere 31 sections, keeps a tight vigil over all the Stock Exchanges of India since 20th February 1957. The provisions of the Act were formerly administered by the Central Government. However, since the enactment of The Securities and Exchange Board of India Act, 1992 the Board established under it (SEBI) concurrently has powers to administer almost all the provisions of the Act.

The Government Securities Act, 2006
The Act was enacted to consolidate and amend the laws relating to Government securities and its management by the RBI. The Act simplifies the procedure for settlement of claims of legal representatives, provides for admissibility of computerised information as evidence, contains provisions for effectively dealing with misuse of Subsidiary General Ledger (SGL) accounts and facilitates pledging and hypothecation of Government securities.

The Securities and Exchange Board of India Act, 1992
The Securities and Exchange Board of India Act, 1992 (hereinafter referred as "The SEBI Act") is having retrospective effect and is deemed to have come into force on January 30, 1992. Relatively a brief act containing only 35 sections, the SEBI Act governs all the Stock Exchanges and the Securities Transactions in India.

The Foreign Contribution (Regulation) Act (FCRA), 2010
The Act was enacted by repealing the erstwhile Foreign Contribution Regulation Act, 1976 mainly to rectify several deficiencies found in the previous Act. The new Act covers the electronic media and organizations, other than political parties, apart from entities in the prohibited list in FCRA, 1976.

The Payment and Settlement Systems Act, 2007
The Act was enacted empowering the Reserve Bank to regulate and supervise payment and settlement systems of the country and provides a legal basis for multilateral netting and settlement finality.

The Prevention of Money- Laundering Act, 2002
The Act was enacted as a follow up to UN General Assembly resolution in 1998, calling for adoption of national anti-money laundering legislations and programmes by member states. The Act provides for preventing money laundering and connected activities, enables confiscation of proceeds of crime, setting up of agencies and mechanisms for co-ordinating measures for combating money laundering, etc.